A Good Explanation re Sales of Stock by P&G Executives

Monday, March 31, 2008

Does P&G owe back taxes in Russia; a clarification
This story came up in my Google alert on P&G this morning. According to the Moscow Times, officials in Russia hit the company with a $28 million tax bill for what the government says is unpaid taxes on royalties. Not a huge amount for a company the size of Procter but interesting given Russia is a pretty big growth market for Procter (something I plan on addressing in a story pretty soon).Now for a clarification: a few weeks ago I posted about Procter executives exercising stock options and I pointed out that in its SEC filings showed that many of them were selling shares at the same time they were buying, and it looked like they were essentially selling old shares to cover the cost of buying the new ones.I had a meeting with Procter's CFO Clayt Daley this morning and found out that's not exactly how it works. The deal is this: the shares executives get when they exercise stock options typically come at a discount, for example, A.G. Lafley might be given "options" to buy 5,000 shares for $25 apiece, while P&G shares might be trading for double that. It's a good deal, but Lafley still has to pay the government taxes on the other $25 for each share. So Procter allows its executives to sell enough shares to pay those taxes, and that's what was happening at the time I posted about it.
posted by Keith T. Reed at 2:58 PM 2 comments links to this post